All About Madras Stock Exchange (MSE)

This post discusses the legacy of the Madras Stock Exchange (MSE). Today, only two stock exchanges operate in India: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). However, years ago, many cities across India had their own stock exchanges, not just Mumbai. In this post, we will take a closer look at the history of the Madras Stock Exchange and its significance.

History:

The Madras Stock Exchange was established on August 12, 1937 which is almost a decade before India gained independence!. Five companies came together as founding members to begin it’s operations in the exchange. Paterson & Co, Kothari & Co, Dalal & Co, Maconochie & Co and India Brokers.

During its early years, MSE operated under an open outcry system, where traders physically gathered to buy and sell securities.

Though the Madras Stock Exchange Association was registered under the Indian Companies Act of 1913. Later, a new law called the Securities Contracts (Regulation) Act, 1956, was passed to control stock trading and stop unfair practices. After this law took effect, the Madras Stock Exchange Limited was officially created on April 29, 1957.

In October of 1957 the Securities Contracts Regulation Act took effect, the Madras Stock Exchange Association became a company limited by guarantee under the Companies Act of 1956. The membership rules also changed—before, firms could be members, but after the change, only individuals could be members. As a result, the partners of member firms became individual members of the Stock Exchange.

In 1996 it transitioned from the traditional open outcry system to an electronic trading system, making trades more efficient and transparent.

At the peak of it’s operations, MSE had 120 live members and 1,785 companies listed on it.

Prominent Companies on Madras Stock Exchange:

At its peak, MSE had over 1,200 listed companies, many of which were family-owned businesses and industrial giants from South India. Some well-known companies that were once traded on Madras stock exchange include:

• TVS Group – One of India’s leading automotive and auto-component manufacturers.
• Murugappa Group – A major conglomerate with interests in finance, engineering, and agriculture.
• India Cements – A significant player in the cement industry, headquartered in Chennai.
• Amrutanjan Healthcare – A well-known pharmaceutical and healthcare company.
• SPIC (Southern Petrochemical Industries Corporation) – A major industrial and fertilizer company.
• Madras Fertilizers Limited – A leading public-sector company in the fertilizer industry.

Challenges & Decline:

Though MSE played a very important part in the regional financial development of Tamil Nadu, over time it faced a lot of challenges which eventually caused it’s closure.

1. Rise of Bigger Exchanges – The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) became more popular. Most traders preferred these bigger exchanges because they had more companies, better technology and better trading volumes.
2. Technology Changes – Trading moved from paper-based to electronic systems. The MSE struggled to keep up with these changes and lost many traders to other exchanges. Though they eventually changed to electronic system, it was too late.
3. Strict Rules from SEBI – The Securities and Exchange Board of India (SEBI) introduced new rules in 2012. They said that small stock exchanges needed at least ₹1,000 crore of trading every year to continue. The MSE could not meet this requirement.

Why Did Madras Stock Exchange Close?

In June of 2012 Securities and Exchange Board of India (SEBI) had ordered that individual stock exchanges should maintain a minimum liquid net worth of ₹ 1,000 million and exchanges that do not comply with this requirement should close down their operations by June 2015.

While Madras Stock Exchange primarily catered to regional companies, it could not compete with BSE and NSE which promoted pan India companies and had very high volume and investor confidence.

Madras Stock Exchange failed to meet these requirements, leading to its derecognition in 2013. In 2015, MSE voluntarily surrendered its stock exchange license and ceased operations permanently.

Legacy and Impact:

MSE played a vital role in developing Tamil Nadu’s economy by supporting local businesses. Many of the prominent Chennai based companies that are trading in BSE and NSE today once traded in Madras Stock Exchange. Examples include TVS, Murugappa group and India cements. Even though the exchange is gone, it remains a significant part of India’s stock market history and promoting regional companies.

The closure forced traders and investors to shift to BSE and NSE for securities trading.